It is just amazing how little people know.
Such a simple question and no good answer.
To show you that you really have not learned much I ask you to consider the following question.
Question:
Imagine that a given Central Bank increases the interest rate to 10% and keeps it there for ever. What is the inflation rate in this economy?
What is more likely -- Steve Williamson doesn't understand monetary economics, or e2ee doesn't? I know which way I'm betting.
http://www.en.wikipedia.org/wiki/Argument_from_authority
The first sentence says:
Argument from authority (Argumentum ab auctoritate), also appeal to authority, is a common logical fallacy
Even more common is stupidity, which you have in spades.
It is just amazing how little people know.
Such a simple question and no good answer.
To show you that you really have not learned much I ask you to consider the following question.
Question:
Imagine that a given Central Bank increases the interest rate to 10% and keeps it there for ever. What is the inflation rate in this economy?
Undetermined?
(Poly sci major)
Not the answer I was given at MIT.
It is just amazing how little people know.
Such a simple question and no good answer.
To show you that you really have not learned much I ask you to consider the following question.
Question:
Imagine that a given Central Bank increases the interest rate to 10% and keeps it there for ever. What is the inflation rate in this economy?Undetermined?
(Poly sci major)
It is just amazing how little people know.
Such a simple question and no good answer.
To show you that you really have not learned much I ask you to consider the following question.
Question:
Imagine that a given Central Bank increases the interest rate to 10% and keeps it there for ever. What is the inflation rate in this economy?
Ever accelerating inflation or deflation depending on where the equilibrium rate is supposed to be. In the off chance it is at 10%, it will turn into accelerating inflation or deflation once it changes. Never heard of Wicksell?
It is just amazing how little people know.
Such a simple question and no good answer.
To show you that you really have not learned much I ask you to consider the following question.
Question:
Imagine that a given Central Bank increases the interest rate to 10% and keeps it there for ever. What is the inflation rate in this economy?Ever accelerating inflation or deflation depending on where the equilibrium rate is supposed to be. In the off chance it is at 10%, it will turn into accelerating inflation or deflation once it changes. Never heard of Wicksell?
Wow this answer is stupid.
Question:
Imagine that a given Central Bank increases the interest rate to 10% and keeps it there for ever. What is the inflation rate in this economy?
How does it get the rate to 10% (presumably from a starting point lower than 10%)? Open market operations to decrease the supply of reserves, leading to an increase in overnight rates to 10%? In that case the economy would be pushed into recession, you would see disinflation, and if the fed kept tightening money to keep a 10% nominal rate, there's no reason to expect inflation to rise.
I supposed they can also get to 10% rates by guiding to an increased inflation target going forward, but that just shows that increased inflation expectations can drive higher nominal rates, not that higher nominal policy rate targets achieved through normal policy instruments (OMOs, discount window, IOR) result in higher inflation.
The neo-Fisherite position here is that central banks should take a leap of faith, and count on the unorthodox action of raising interest rates to shock markets into expecting higher inflation. But if the plan is to try something dramatic in order to raise inflation expectations, there are lots of options available, many of which would appear to be far more likely to work. The central bank could, for instance, announce that it wanted higher inflation and would therefore raise its inflation target. It could promise to buy foreign exchange and depreciate the currency until inflation were higher. It could do lots of things, in other words, that did not, to the first order, represent a mechanical tightening of monetary policy.
Or to turn the empirical side of the heterodox argument on the heterodox economists: when has raising interest rates while at the zero lower bound led to higher inflation?
This story about the wrong sign should end at a certain point
^ Two versions:
- the first is that by increasing rates, interest rates payments increase aggregate demand, and then inflation
-the second is that by increasing rates, you reduce demand today, which in turn increases expected demand tomorrow, which in turn increase expected inflation, which in turn increases inflation today
If you work through the model it basically goes like this, after too many equations.
Obviously they are bullsh1ts and they remind me an article by Tobin about the dollar in which he pointed out that many at the time believed that a depreciated dollar would lead Europe towards recession and then in turn the recession would be transmitted to the US.